Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 7: PPE & Intangibles
7.1-1 The cost of any PPE is the sum of all of the costs incurred to bring the asset to its intended use.
7.1-2 The cost of land may include the cost to remove an unwanted building.
7.1-3 Of the PPE, buildings are depreciated because these are long-term tangible assets.
7.1-4 Land improvements are not subject to depreciation, as these items are subject to decay.
7.1-5 Buildings depreciate, natural resources are amortized and intangible assets deplete.
7.1-6 Costs of land improvements are included in the Land account.
7.1-7 Any cost to get machinery up and running and ready for its intended use should be part of the cost of the
asset and depreciated.
7.1-8 The cost of leasehold improvements should be expensed immediately, as this is not a capital asset.
7.1-9 The cost of assets purchased together in a lump sum should be allocated using the market value of each of
the assets.
7.1-10 When a company spends money on a PPE, it must decide whether to record an asset or an expense.
7.1-11 The distinction between a capital expenditure and an expense is not always clear-cut.
7.1-12 Many companies will have a policy of expensing all items above a certain dollar amount.
7.1-13 The depreciation process is in accordance with the matching principle.
7.1-14 An example of a long-term tangible asset would be:
A) office supplies.
B) furniture.
C) investment in LQH company.
D) patents.
7.1-15 Long-lived tangible assets that are used in the operation of the business are called:
A) intangible assets.
B) natural resources.
C) PPE.
D) goodwill.
7.1-16 The only PPE that does not depreciate is:
A) office supplies.
B) furniture.
C) land.
D) patents.
7.1-17 An asset with no physical form, but that has special rights to current and expected future benefits is a(n):
A) intangible asset.
B) natural resource.
C) PPE.
D) fixed asset.
7.1-18 Which of the following statements is TRUE?
A) Land does not depreciate; natural resources are depreciated.
B) Land does not depreciate; buildings depreciate, and natural resources are amortized.
C) Land does not depreciate; natural resources are depleted and intangibles are amortized.
D) Land does not depreciate; buildings and natural resources depreciate.
7.1-19 All amounts paid to acquire a PPE and to get it ready for its intended use are referred to as:
A. set up costs.
B. expenditures .
C) maintenance expense.
D) the cost of an asset.
7.1-20 Costs that would be included with the purchase of a PPE are:
A) the sum of all of the costs incurred to bring the asset to its intended use.
B) only costs that exceed a certain amount.
C) only the purchase price.
D) none of the above.
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7.1-21 Which of the following should be included in the cost of land?
A) Construction cost of a parking lot
B) Landscaping
C) Real estate brokerage commission
D) Lighting
7.1-22 Which of the following should be included in the cost of land?
A) Costs of grading and clearing the land
B) Costs of removing an unwanted building
C) Cost of fencing
D) Both A and B
7.1-23 Which of the following is NOT an intangible asset?
A) Copyright
B. Goodwill
C) Patent
D) Mineral rights
7.1-24 The cost of installing shrubbery should be recorded as:
A) land.
B) land improvements.
C) land maintenance expense.
D) land improvement expense.
7.1-25 Although located on the land, they are subject to decay and their cost is depreciated. This is the definition
of:
A) land improvement.
B) plant and equipment.
C) a building.
D) land.
7.1-26 The cost of assets acquired in a lump-sum purchase must be allocated using which method?
A) Book-value method
B Cost method
C. Per capita method
D. Relative-sales-value-method
7.1-27 Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three
assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?
A) $250,000
B) $262,500
C) $300,000
D) $342,857
7.1-28 Land is purchased for $62,500. Back taxes paid by the purchaser were $7,500; total costs to demolish an
existing building were $11,000; fencing costs were $12,500; and lighting costs were $1,500. What is the
cost of the land?
A) $62,500
B) $81,000
C) $93,500
D) $95,000
7.1-29 Which of the following should be included in the Machinery account?
A) The cost of transporting the machinery to its setup location
B) The cost of a maintenance insurance plan after the machinery is up and running
C) The cost of calibrating the machinery after it has been used for a year
D) The cost of insurance while the machinery is being overhauled
7.1-30 Morton Corporation purchased equipment for $46,000. Morton also paid $1,200 for freight and insurance
while the equipment was in transit. Sales tax amounted to $850. Insurance, taxes and maintenance for the
first year of use was $1,000. How much should Morton Corporation capitalize as the cost of the
equipment?
A) $46,000
B) $46,850
C) $48,050
D) $49,050
7.1-31 A company recently purchased a building that it plans to renovate to get ready for use in its operations.
All expenditures to repair and renovate the existing building for its intended use are charged to:
A) land.
B) land improvements.
C) land improvements expense.
D) building.
7.1-32 Maxco Company acquired land and buildings for $1,000,000. The land is appraised at $450,000 and the
buildings are appraised at $800,000. The debits to the Land and Buildings accounts will be:
A) Land $360,000; Building $640,000.
B) Land $500,000; Building $500,000.
C) Land $450,000; Building $800,000.
D) Land $562,500; Building $437,500.
7.1-33 In a lump-sum purchase of assets, the relative-sales-value is defined as the:
A) total price paid less the value of the most valuable asset.
B) total price paid compared to the total market value.
C) ratio of each asset’s market value to the total market value.
D) ratio of each asset’s market value to the total book value.
7.1-34 Bixby Corporation purchased land and a building for $800,000. An appraisal indicates that the land’s
value is $400,000 and the building’s value is $500,000. When recording this transaction Galaxy should
debit:
A) Land for $800,000.
B) Building for $355,555.
C) Land Improvement-Building for $500,000.
D) Building for $444,444.
7.1-35 The Augusta Health Company purchased land, buildings and equipment for $2,400,000. The land has
been appraised at $915,000, the buildings at $1,125,000 and the equipment at $510,000. The equipment
account will be debited for:
A) $541,875.
B) $500,000.
C) $480,000.
D) $410,156.
7.1-36 An expenditure that increases an asset’s capacity or efficiency or extends its useful life is a(n):
A) capital expenditure.
B) expense.
C) addition.
D) improvement.
7.1-37 A capital expenditure is:
A) debited to an expense account.
B) credited to an expense account.
C) debited to an asset account.
D) debited to a shareholders’ equity account.
7.1-38 Costs that do not extend the asset’s capacity or its useful life, but merely maintain the asset or restore it to
working order are recorded as:
A) capital expenditures.
B) expenses.
C) additions.
D) improvements.
7.1-39 Which of the following costs associated with a delivery van should be capitalized?
I. The van is repainted.
II. The van’s transmission is completely overhauled to extend useful life for two years.
III. The van is modified for a specific use.
A) I and II
B) I and III
C) II and III
D) All of these answers are correct.
7.1-40 The journal entry to record a major expenditure to upgrade equipment that extends its useful life beyond
the original estimate would include a:
A) credit to Depreciation Expense.
B) debit to Equipment.
C) debit to Depreciation Expense.
D) debit to Repair Expense.
7.1-41 Pat’s Pets recently paid to have the engine in its delivery van overhauled. The estimated useful life of the
van was originally estimated to be 7 years. The overhaul is expected to extend the useful life of the van to
9 years. The overhaul is regarded as a(n):
A) revenue expenditure.
B) capital expenditure.
C) equity expenditure.
D) matching expenditure.
7.1-42 Capital expenditures are not immediately expensed because these items:
A) do not extend the life of an asset.
B) return an asset to its prior condition.
C) increase the asset’s capacity.
D) do all of the above.
7.1-43 Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by
debiting:
A) Accumulated Depreciation.
B) Depreciation Expense.
C) Equipment.
D) Repair Expense.
7.1-44 Which of the following should be included in the cost of equipment?
A) Freight costs to deliver the equipment
B) Installation costs for the equipment
C) Testing costs to get the equipment ready for use
D) All of the above
7.1-45 A machine is purchased for $70,000. The transportation costs were $4,000, installation costs were $1,000
and taxes on the purchase price were $700. The cost basis of the machine is:
A) $70,000.
B) $74,000.
C) $75,700.
D) none of the above.
7.1-46 On June 1, Puff’s Trucking Company paid $3,000 to overhaul the engine on a delivery truck to allow it to
be used for two additional years. It also paid $75 for an oil change on the truck. Which of the following
statements is true?
A) The $3,000 is a capital expenditure and the $75 is an expense.
B) The $3,000 is an expense and the $75 is a capital expenditure.
C) Both items are capital expenditures.
D) Both items are expenses.
7.1-47 Treating a capital expenditure as an immediate expense:
A) overstates assets and overstates owners’ equity.
B) overstates expenses and understates net income.
C) understates expenses and overstates owners’ equity.
D) understates expenses and understates assets.
7.1-48 The book value of a PPE is the:
A) cost less depreciation expense.
B) cost plus accumulated depreciation.
C) cost less accumulated depreciation.
D) original cost of the asset, plus any capital expenditures.
7.1-49 The process of allocating the cost of a PPE to expense over its life is:
A) amortization.
B) depletion.
C) matching.
D) depreciation.
7.1-50 Which of the following statements is TRUE?
A) Depreciation expense and accumulated depreciation are both reported on the income statement.
B) Depreciation expense and accumulated depreciation are both reported on the balance sheet.
C) Depreciation expense is reported on the income statement and accumulated depreciation is reported
on the balance sheet.
D) Depreciation expense is reported on the balance sheet and accumulated depreciation is reported on the
income statement.
7.1-51 Depreciation is:
A) a process of valuation.
B) the setting aside of cash to replace assets as they wear out.
C) the allocation of a PPE’s cost to expense over its life.
D) not calculated for assets that are appreciating in value.
7.1-52 The Accumulated Depreciation account represents a contra-revenue account.
7.1-53 Obsolescence may cause an asset’s useful life to be longer than the asset’s physical life.
7.1-54 When using the units-of-production depreciation method, the asset’s actual cost is used in computing the
first year of depreciation.
7.1-55 Book value equals the cost of the asset less the total accumulated depreciation.
7.1-56 The normal balance of the accumulated depreciation account is a debit.
7.1-57 The straight-line method is one of the most widely used methods of computing depreciation for financial
statement purposes.
7.1-58 At the end of its useful life, an asset is said to be fully depreciated.
7.1-59 The units-of production method depends directly on the time the asset is used.
7.1-60 The three depreciation methods allocate different amounts of depreciation to each period, but all result in
the same total amount of depreciation over the life of the asset.
7.1-61 Double-declining-balance depreciation computes total depreciation by multiplying the asset’s book value
by two times the straight-line rate.
7.1-62 The process of allocating a PPE’s cost to expense over the period in which the asset is used is called:
A) amortization.
B) allocation.
C) depreciation.
D) disclosure.
7.1-63 Which accounting principle directs the depreciation process?
A) Full disclosure
B) Going concern
C) Historical cost
D) Matching
7.1-64 The length of service that a business expects to get from an asset as expressed in years, units of output,
miles or other measures is the:
A) depreciable cost.
B) estimated useful life.
C) salvage value.
D) accelerated depreciation method.
7.1-65 The depreciation process attempts to match the:
A. salvage value of the asset and the future market value of the asset.
B. book value and the current market value of the asset.
C. cost of the asset and the cash required to replace the asset.
D. revenues earned by the asset and the cost of the asset.
7.1-66 Which of the following depreciation methods best fits those assets that tend to wear out before they
become obsolete?
A) Straight-line method
B) Depletion method
C) Double-declining-balance method
D) Units-of-production method
7.1-67 Double-declining balance depreciation:
A) is an accelerated method of depreciation.
B) ignores the residual value in computing depreciation, except during the last year.
C) is based on book value.
D) is all of the above.
7.1-68 Which of the following depreciation methods best applies to those assets that generate greater revenue
earlier in their useful lives?
A) Straight-line method
B) Depletion method
C) Double-declining-balance method
D) Units-of-production method
7.1-69 A depreciation method that writes off a relatively larger amount of the asset’s cost nearer the start of its
useful life than the straight-line method is the:
A) units-of-production method.
B) straight-line method.
C) accelerated depreciation method.
D) estimated residual value method.
7.1-70 A depreciation method in which an equal amount of depreciation expense is assigned to each year of the
asset’s use is the:
A) units-of-production method.
B) straight-line method.
C) accelerated depreciation method.
D) estimated residual value method.